What can be anticipated for Carvana's stock value over the next five years?
Carvana's (CVNA 1.42%) stock chart might as well be a thrilling roller coaster ride, with its shares soaring an impressive 187% over the past five years. Despite the wild volatility, it's undeniable that this digital car-selling powerhouse has delivered substantial returns.
The tide has shifted for Carvana lately, as it's been steadily improving its financial standing and regaining investor confidence. If you've missed this ride up until now, you're probably wondering what kind of returns you could potentially see in the future.
Well, buckle up! Given its online-only platform, expansive inventory, and broad distribution and reconditioning network, Carvana has revolutionized the used car market. This streamlined approach resulted in a whopping 134% increase in unit volume since 2019, with a 28% surge in vehicle sales from Q3 2023 to Q3 2024.
Looking ahead, I'm confident that Carvana will continue to sell more cars in the coming years. The company's shareholder letter boasted that its existing infrastructure can support annual production capacity of over 1 million retail units, and its real estate footprint could accommodate up to 3 million retail units. To put this into perspective, in 2023, there were 36 million used-car transactions in the U.S. – leaving a hefty market share for Carvana to tap into, currently at just 1%.
As for profitability, Carvana has had its fair share of financial struggles due to the costs associated with scaling operations. However, the company has shown improvement, boasting positive net income in the last three quarters – albeit with slim profit margins. If Carvana can maintain growth and revenue momentum, the potential exists for significant long-term profitability.
The company has a long-term target to achieve a sustainable net profit margin of 8-13.5% based on EBITDA, and analysts expect its earnings per share to improve dramatically, from a loss of $2.97 in 2023 to a positive $4.72 by 2026. A smaller debt load would undoubtedly help the company attain its profitability goals.
While Carvana's stock has outperformed the S&P 500 over the past five years, valuation concerns are a legitimate cause for concern. With a high P/S ratio of 3.6 – just 13% from its historical high – investors may face a significant challenge in expecting Carvana shares to outperform the market over the next five years. But, as they say, 'past performance is not an indicator of future results,' so investors should remain vigilant and active in their decision-making.
Analysts predict a strong earnings performance for Carvana, based on its financial health and efficient operations. Despite facing challenges with its debt, high-interest expenses, and a risk of valuation contraction, Carvana's continued focus on digitalization, efficiency, and growth could position it well for future profitability. The future of CVNA is bright – if it manages its finances and risks wisely.
If you're interested in investing in Carvana's future, you might be intrigued by its potential for continued profitability. With a long-term target of achieving a sustainable net profit margin of 8-13.5% based on EBITDA, and analysts expecting its earnings per share to improve dramatically, Carvana's financial future seems promising.
Given Carvana's impressive growth over the past few years and its substantial returns, smart investors might consider allocating a portion of their money in finance towards this digital car-selling phenomenon.
